Tax season is here. And before we know it, the big day (hint: April 18) will be upon us. But doing your taxes can feel like taking a test after missing a day (or semester) of class. So this year, we tapped an expert to help fill in some common gaps. And make doing our taxes a little less…taxing. |
|
|
Is there any income I don't need to pay taxes on? |
Taxable income is gross income minus deductions. That includes earned income from wages and unearned income from investments. Even gambling jackpots and prize winnings are taxable. But there are a few income sources that aren't taxable. For example: |
🍼 If your company helps you cover the cost of adopting a child, that assistance is usually tax-exempt. |
🌪️ Victims of natural disasters don't typically pay taxes on government assistance they receive. |
🎁 Financial gifts — either money or other assets — are not taxable. Only the gift giver would possibly owe taxes on that money. |
💵 Life insurance proceeds are typically not taxable. And there's no federal inheritance tax unless you inherited an item that produces income. |
|
|
What's the difference between a tax deduction and a tax credit? |
A tax deduction lowers your taxable income and the rate at which you're taxed. So if you're in the 22% tax bracket, a $1,000 deduction actually saves you $220. |
A tax credit, on the other hand, reduces the amount of tax you owe dollar-for-dollar. Meaning a $1,000 tax credit would reduce your tax bill by $1,000. |
|
|
How do I know which deduction(s) I qualify for? |
If the standard deduction for 2022 is less than your total itemized deductions, you should itemize to save money. Otherwise, the standard deduction is probably the way to go. (PS: When you file with TaxAct, they'll figure out which would be better for you and use it to maximize your tax benefit.) |
|
|
Are there any tax code changes for this year I should know about? |
The standard deduction increased slightly to... |
👩 $12,950 for single filers. 💍 $25,900 for married folks filing jointly. 🏠 $19,400 for heads of household or married folks filing separately. |
For 2020 and 2021, single filers could claim a special deduction for up to $300 for cash donations to charity (Married filers filing jointly could deduct $600.) That's expired, so you'll have to itemize to claim charitable deductions this year. |
Lastly, the Child Tax Credit has decreased after being bumped up in 2021. For 2022 returns, parents may be eligible to claim a tax credit of up to $2,000 for each of their kids under age 17. |
|
|
Issues? help@theSkimm.com Copyright (c) 2023 theSkimm, All rights reserved. Our mailing address is theSkimm Inc. 53 W 23rd Street, Floor 8 New York, NY 10010, United States Want to change how you receive these emails?
Update your preferences or unsubscribe here. |
|
|
|
